Can Collection Agencies Continue to Charge Interest After Buying a Debt?

Many companies that regularly sell to their clients on credit are not well equipped to collect what they are owed. In such instances, the company may choose to hire a collection agency, a company that specializes in the collection of debts, to get paid what it is owed. In some cases, the company may even sell the debt outright to the agency. Agencies, however, can only charge the debtor the interest called for in the debt contract.

Debt Contracts

All legal debts are secured by an agreement, usually a written one, that specifies the terms under which the money that is being loaned out will be paid back. Whether made verbally or written out, these agreements constitute a legal contract that both the debtor and the creditor must abide by. Interest can only be assessed on the debt according to the terms laid out by the two parties in this contract.

Collection Agencies

When a debt is transferred to a collection agency, whether the collection agency has bought it or whether it is just working at the behest of the creditor, the terms of the debt contract do not change. The collection agency fully supplants the original creditor and takes on all of its rights and obligations. Although the debtor will be making payments to a different party, he will pay the exact same amount as before.

Paying Interest

If a debt contract calls for interest to be paid on a loan, then the collection agency is legally allowed to collect it according to the terms of the debt contract. Just because the contract has been transferred or the creditor has hired a proxy does not mean that the debtor does not have to keep paying interest. However, the collection agency cannot assess any additional interest not called for in the original debt contract.

Considerations

If a collection agency attempts to assess the person fees that are not called for in the original contract -- for example, if the collection agency attempts to pass on the cost of collection to the debtor through the assessment of additional interest -- it is in violation of federal law. The debtor may file suit against the creditor and may even receive financial compensation for the creditor's actions.